Economists Lower GDP Forecast & Economic Outlook, Citing COVID Variants as Top Risk

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Economists have lowered their U.S. Gross Domestic Product forecast for 2021 and 2022, as well as economic growth as a whole, citing “a variant of the coronavirus against which the vaccines may be ineffective as the main downside risk.”

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The National Association for Business Economics (NABE) Outlook — which presents the consensus macroeconomic forecast of a panel of 47 professional forecasters — has become more tempered about 2021 as a whole. Its median real GDP growth estimate for 2021 is down sharply at 5.6%, compared to the 6.7% forecasted in the May 2021 survey

“NABE Outlook survey panelists have moderated their expectations about the prospects for economic growth in 2021 since May,” said NABE President-elect David Altig, executive vice president and director of research, Federal Reserve Bank of Atlanta. “The median forecast calls for a 4.0% annualized growth rate in the third quarter of 2021 for inflation adjusted gross domestic product, or real GDP.”

While the economists also moved up their inflation expectations significantly from those in the May 2021 survey, they anticipate inflation will ease in 2022.

In terms of the labor market, the economists’ view on the timing of a job recovery is nearly identical to that reported in the May outlook survey, with 67% of anticipating nonfarm payrolls to return to pre-COVID-19 levels by the end of 2022, similar to the 66% in the May survey.

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As for the timing, 12% expect this to occur beginning in the second quarter of 2022, 26% anticipate it to occur in the third quarter 2022 and 29% expect it in the fourth quarter. One-third of panelists anticipate job recovery to occur in 2023 or later, according to the survey.

Several other economists echo the sentiment. CFRA Chief Investment Strategist Sam Stovall tells GOBankingRates that CFRA economic forecast provider has cut its Q3 GDP projection to 4% from 5.4%. Factors include sharply weakening consumer confidence, influenced by increased readings and forecasts for inflation, higher interest rates in anticipation of the Fed’s tapering announcement, the economic slowing impact from the ever-spreading Delta variant and the supply disruptions that will likely continue well into 2022.

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NABE economists also revised their inflation expectations for 2021 up sharply, and up moderately for 2022. Inflation, as measured by the Consumer Price Index, is forecasted to reach 5.1% year-over-year in the fourth quarter of 2021, up from 2.8% year-over-year, in the May survey.

Inflation is expected to moderate to 2.4% year-over-year in the fourth of 2022, up from the 2.3% year-over-year forecasted in the May survey.

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